- NZD/USD recovers intraday losses as the US Dollar struggles to resume its bullish trajectory.
- The risk profile remains favourable for risk-sensitive assets.
- Investors are looking forward to the US NFP data in a busy week for US data.
The NZD/USD pair is recovering strongly from the intraday low of 0.6170 in the American session on Wednesday. The New Zealand asset is bouncing back as the US Dollar (USD) is struggling to resume its bullish trajectory after correcting from a fresh two-week high.
The US Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is trading in a narrow range near 101.60. Meanwhile, market sentiment remains risk-off amid uncertainty ahead of the US (US) Non-Farm Payrolls (NFP) data for August, due later this week. S&P 500 futures have posted significant losses in the American session, portraying a decline in market participants’ risk appetite.
Investors are keenly awaiting the release of the US NFP data as it will shape the path of Federal Reserve (Fed) interest rates. It is widely anticipated that the Fed will start cutting interest rates from the September meeting. However, traders are divided on the likely size of the Fed interest rate cut. According to the CME FedWatch tool, the probability of a 50 basis point (bp) interest rate cut in September is 39%, while the rest favor a 25 bp decrease to 5.00%-5.25%.
The possibility of a 50bp interest rate cut could increase if the US NFP report shows that labor demand remained weak and the unemployment rate rose in August. Conversely, stable or upbeat labor market data would weaken the rate.
Today’s session will focus on investors’ focus on the US JOLTS job openings data for July, due out at 14:00 GMT. According to estimates, US employers posted 8.1 million job openings, slightly down from 8.184 million in June.
On the Asia-Pacific front, the New Zealand Dollar (NZD) will be guided by market speculation on the Reserve Bank of New Zealand’s (RBNZ) interest rate path in the absence of top-tier economic data. The RBNZ unexpectedly shifted to policy normalisation in August.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known currency among investors. Its value is largely determined by the health of the New Zealand economy and the policies of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. Developments in the Chinese economy tend to move the Kiwi because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely translate into fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor that moves the NZD is dairy prices, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and therefore the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with the aim of keeping it close to the midpoint of 2%. To do this, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ raises interest rates to cool the economy, but the move will also push up bond yields, increasing the attractiveness of investors to invest in the country and thus boosting the NZD. Conversely, lower interest rates tend to weaken the NZD. The so-called rate spread, or how rates in New Zealand are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in the movement of the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment and high confidence is good for the NZD. High economic growth attracts foreign investment and can encourage the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by high inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk appetite, or when investors perceive that overall market risks are low and are optimistic about growth. This often translates into a more favourable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD tends to weaken during times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
